Financial advisers to be put through their paces

Providers of services will have 21 months to meet new standards. Dennis Young examines the PIA plan
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THE Personal Investment Authority (PIA), the public's financial services watchdog, is expected to announce within the next three weeks that it is delaying until 1 October the start of its plan to introduce uniform minimum standards of training and competence for tied agents and independent financial advisers.

But the plan will still have to be implemented by 1 July 1997, giving the financial services industry just 21 months instead of 24 to ensure all sales staff and advisers have attained basic qualifications before they can sell or recommend life assurance, pensions, mortgages and similar financial products.

The PIA's aim in publishing its Training and Competence Scheme, Rules and Guidance (TCSRG) next month is to build on schemes already approved by other watchdogs. It is also intended to develop a unified scheme to ensure, in the words of its chief executive, Colette Bowe, that "there should be common standards for all advisers, whether tied or independent, involved in a similar activity".

Training for all new advisers, irrespective of which sector they operate in, will involve a two-stage process, leading to the attainment of Threshold Level Competence (TLC). However, a firm may make suitably modified provision for new entrants with prior knowledge and skills.

The nature and extent of the modifications will depend on the appropriateness and standard of the prior knowledge and skills. But all experienced new entrants are to be assessed for TLC as part of the overall requirement.

Members may either use their own in-house resources or those of external training providers, or a combination of both. The PIA will validate and assess members' schemes to ensure that the level of training and supervision provided is adequate to meet the TCSRG standards. For small firms, the PIA will work closely with the appropriate trade associations and professional bodies to facilitate access to training.

There will be two stages of new entrant training:

In Stage 1, training provided must include the following components: knowledge and understanding of the Stage 1 Generic Knowledge Benchmark; firm-specific knowledge and understanding of the firm's products (if relevant) and services, its specific compliance procedures and sales policy; training specifically designed to enable the new entrant to analyse customers' needs and provide best advice; application skills training to enable the new entrant to apply the knowledge and skills to practical situations.

In Stage 2 the purpose is to establish and confirm the participant's ability routinely to fulfil the required obligations of integrity, competence and conduct in dealings with customers. During this period participants undertake the full range of activities within their jobs under direct supervision.

Individuals who achieve competence at this stage will be deemed Threshold Level Competent. A progressive degree of unaccompanied activity will be permitted during this latter stage of training, in accordance with the supervisor's judgement and the assessed performance of the adviser. An essential part of the Stage 2 requirement is for those advisers classified as being involved in the "financial planning process" to achieve the Stage 2 Generic Knowledge Benchmark.

The PIA considers that knowledge is an essential ingredient for competence and that the full Financial Planning Certificate (FPC) as offered by the Chartered Insurance Institute or the Investment Advice Certificate (IAC) as offered by the Securities Institute are appropriate as a common qualification for those advisers involved in the financial planning process, where an in-depth knowledge of generic products, providers and the advisory process is required.

However, for those advisers authorised to sell only a very limited range and level of products, such as many friendly society and certain home service advisers, and who therefore cannot be considered to be involved in the financial planning process, it is considered that Paper I only of the FPC or IAC will provide an appropriate and adequate generic knowledge qualification.

As regards the competence requirements for existing staff, the PIA has taken into account those members who have achieved levels of competence set by a previous self-regulatory organisation and who, understandably, feel that where appropriate, those previously assessed requirements should be incorporated in the new TCSRG. Also, members consider that prior experience is an important factor in any arrangement for deeming existing advisers competent.

But the PIA considers that it is reasonable to expect that all existing advisers should be required to prove their competence to undertake their particular advisory responsibilities. It is felt that any arrangement that deems advisers competent solely on the basis of experience is unacceptable, as it does not provide the breadth of evidence that is required.

Thus, the TCSRG provides existing staff with three routes to prove their competence. This arrangement takes into account previously assessed elements as well as providing an option for advisers of "more mature years" who may prefer to be assessed other than by formal written examination.

Existing advisers will be permitted 21 months until 30 June, 1997 in which to achieve the necessary requirements. They may, during this period, undertake their normal advisory activities, under supervision, while working towards attaining the new requirement.

Existing advisers who have already successfully completed any element of the requirements will be deemed to be competent (for instance, the in-house assessment of their on-job performance) under SRO training and competence and will not be reassessed in that part of the requirement.

Agreement has been reached with both the Chartered Insurance Institute and the Securities Institute, whereby an existing adviser as at 1 October next who has achieved the equivalent of the Stage 1 Generic Knowledge Benchmark based on the 1994 syllabus, via an SRO-approved in-house scheme, will be credited with the first stage of the FPC or IAC towards the full qualification.

In line with the current requirements for advisers operating in the independent sector, the principal of an IFA firm requires a minimum of three years' experience, of which at least six months must have been gained as an IFA, to be deemed competent. If the principal is a sole trader, at least 12 months of the experience must have been gained as an IFA.